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Heterogeneous Round-Trip Trading and the Emergence of Volatility Clustering in Speculation Game

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Abstract

This study is a detailed analysis of Speculation Game, a simple agent-based model of financial markets, in which the round-trip trading and the dynamic wealth evolution with variable trading volumes are implemented. Instead of herding behavior, the authors find that the heterogeneous holding periods in round-trip trades can contribute to the emergence of volatility clustering. In particular, the spontaneous redistribution of market wealth through repetitions of round-trip trades with non-uniform horizons can widen the wealth disparity and establish the Pareto distribution of the capital size. As a result, the intermittent placements of relatively big orders from endogenously emerged rich traders can bring on large fluctuations in price return. Empirical data are used to support the scenario derived from the model.

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Acknowledgements

We sincerely thank Dr. Akiyama for his valuable comments to improve the quality of our paper.

Author information

Authors and Affiliations

  1. Faculty of Engineering, Information and Systems, University of Tsukuba, Tennodai 1-1-1, Tsukuba, Ibaraki, 305-8573, Japan

    Kei Katahira

  2. Research Fellow of Japan Society for the Promotion of Science, Tokyo, Japan

    Kei Katahira

  3. Graduate School of Frontier Sciences, The University of Tokyo, 5-1-5 Kashiwanoha, Kashiwa-shi, Chiba-ken, 277-8563, Japan

    Yu Chen

Authors
  1. Kei Katahira
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  2. Yu Chen
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Corresponding author

Correspondence to Kei Katahira.

Additional information

This research was supported by JSPS KAKENHI under Grant Nos. JP17J09156 and JP20J00107.

This paper was recommended for publication by Editor CAO Zhigang.

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Katahira, K., Chen, Y. Heterogeneous Round-Trip Trading and the Emergence of Volatility Clustering in Speculation Game. J Syst Sci Complex 35, 221–244 (2022). https://doi.org/10.1007/s11424-021-0147-8

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  • DOI: https://doi.org/10.1007/s11424-021-0147-8

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